Not expanding Medicaid means millions more in taxes for Tennessee employers

Jan. 23, 2014

Marcelas Owens of Seattle, left, Rep. John Dingell, D-Mich., right, and others, watch as President Barack Obama signs the health care bill in the East Room of the White House in Washington on March 23, 2010. / J. Scott Applewhite / File / Associated Press

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By the numbers

• 933,700 Uninsured residents in Tennessee before the opening of the federal insurance exchanges. • 224,000 Number of residents who would probably be covered if Medicaid expansion were approved in Tennessee. • 1 billion Cost of uncompensated care performed by health care providers in Tennessee in 2011.

Source: Vanderbilt University

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Employers in Tennessee will have to pay tens of millions of dollars in new taxes if the state does not expand its Medicaid program, according to a new study.

The report, by Jackson Hewitt, estimates that Tennessee’s failure to expand Medicaid would cost employers between $48 million and $72 million each year, beginning in 2015.

Nationally, the penalties could reach nearly $1.5 billion each year in the 25 states that have not yet expanded Medicaid for adults, the study finds.

The tax penalty is somewhat hidden in the language of the Affordable Care Act, said lead author Brian Haile, Jackson Hewitt’s senior vice president of health policy.

The health reform law was written under the assumption that all states would expand Medicaid, meaning that the state-backed program could cover people who earn up to 138 percent of the federal poverty level, instead of topping out at 100 percent. The federal poverty level is $11,490 per year for an individual.

With Medicaid expansion in mind, the law includes a “shared responsibility” tax, which penalizes employers if an employee qualifies for a subsidy, or premium tax credit, to buy insurance on the federal exchange.

The shared responsibility rule was written, in part, to prevent employers from abruptly dropping health care coverage for low-income employees. Employers will not be penalized if employees sign up for Medicaid.

But in 2012, the Supreme Court ruled that states did not have to expand Medicaid. In states that didn’t, such as Tennessee, employees earning 100 percent to 138 percent of the federal poverty level will not qualify for Medicaid, but some will qualify for tax credits on the exchange. Employers will be fined $2,000 to $3,000 per qualified person who signs up for insurance on the exchange.

In Tennessee, the Jackson Hewitt study estimates, 24,000 people will qualify for premium tax credits. The amount that employers will be penalized will depend on how many people take advantage of that option.

State officials have not yet rejected an expansion of Medicaid outright; instead, Gov. Bill Haslam hopes eventually to reach a compromise with federal officials.

The Nashville Area Chamber of Commerce took a position in favor of Medicaid expansion last year, said Marc Everett Hill, chief policy officer. “The tax penalties are a major reason why expanding Medicaid is a bottom-line issue for many of our member businesses. We’re counting on the state to successfully negotiate a ‘Tennessee Plan’ for Medicaid expansion.”

Though the results of the study may not apply to many small businesses, said Kevin Kuhlman, manager of legislative affairs for the National Federation of Independent Businesses, “A business should not face expensive penalties for state and regulatory decisions beyond their control.”